Engineering Inc. - September/October 2016 - 4

MarketWatch BY G E R RY D O N O H U E Hospitality Market Enjoys Rebound T he bar graph depicting the past 15 years of activity in the hospitality sector resembles a particularly scary roller coaster. Climbing out of a dip in 2003, the market more than tripled in size by 2008, topping out at $35.8 billion in construction put in place. Then the global economic crisis hit, and the hospitality market came crashing down. By 2011, the sector had lost all of its gains and more, cratering at just over $9 billion in annual activity. From that nadir, the market has soared upward again, increasing at a double-digit annual rate, even hitting a 31 percent growth rate in 2015. "Every aspect of the hotel market has been very positive in terms of development since what I call the 'dark years' (2009-2011)," says Nunzio DeSantis, managing director of HKS Hospitality Group in Dallas, Texas. Craig Nealy, senior principal at Stantec in Boston, agrees. "2015 was a halcyon year," he says. "Everything jelled. It was a convergence of available funding, demand for rooms and plentiful construction crews." Looking forward over the next several years, many firm leaders agree that the market won't be able to maintain such a robust pace, but they are confident it will continue to grow strongly. In its market projections for the sector, FMI forecasts 15 percent growth in 2016-making it the fastest-growing sector this year-but then tailing off to an average of about 5.5 percent through 2020. "We've heard that financing may become more selective, in which case developers might become more cautious and deliberate in determining which projects go forward," DeSantis says. "But even though indications are that the market will slow down, we haven't seen it." Nealy remains optimistic. "Revenue per available room (RevPar) is up," he says. RevPar is a key hotel industry performance metric. "It's expected to keep going up for the next 10 to 12 years, which makes me feel Hospitality Construction Put In Place Millions of Current Dollars 40,000 Savvy Clients 30,000 20,000 10,000 Source: FMI ENGINEERING INC. SEPTEMBER / OCTOBER 2016 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 0 4 very bullish." The hospitality market ranges from limited-service budget hotels to high-end luxury destination hotels. While he expects all of the segments to perform well, DeSantis expects two of them to outperform. "I think there will always be space in the super-high luxury market and in places that are hard to develop, such as Jackson, Wyoming, and California," he says. Nealy points to Boston, where he says it is "almost impossible to build a new hotel, even though demand for rooms is way up." As a result he says, existing hotels are selling for record amounts and fueling a strong market for renovations. "The convention center hotel market will also continue to do well," DeSantis says. They serve a broader purpose than just lodging, he adds; they support the community and bring people to the city. At a projected $24.3 billion of construction put in place in 2016, hospitality is one of the smaller nonresidential building sectors, less than half the size of the office sector ($61 billion). Clients range from developers of one-off boutique hotels to the huge international chains, such as Hilton and AccorHotels. Design firms serving the sector tend to be one-stop shops, offering both engineering and architectural services. "We bring a full menu of services to our clients-engineering, architecture, place making and branding, landscape engineering and master planning,"

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